United Benefit Advisors Insight and Analysis Blog

Premium tax credits are only available to individuals who obtain health coverage through a Marketplace. A dispute has arisen as to whether the IRS has the ability to interpret PPACA to allow the subsidy to individuals who obtain coverage through any Marketplace, or whether the language of PPACA limits eligibility to those who have obtained coverage through a state Marketplace. The U.S. Supreme Court has agreed to rule on whether premium tax credits may only be available to individuals who receive tax subsidies as a result of being enrolled in a state exchange. In the meantime, the IRS has stated that it will continue to issue tax credits to individuals in both state and federally-run Marketplaces.

If the Supreme Court decides the IRS rule that tax credits are available regardless of what type of Marketplace is in place, the current system will remain in effect. However, if it rules that tax credits are only legally available to individuals enrolled in state Marketplaces, that decision will have significant consequences, since only about one-third of the states are running their own Marketplace, while the federal government runs the Marketplace for the remaining states. If premium tax credits are only allowed in states with their own Marketplace, most Americans will become ineligible to receive the tax credits. Well over half of the people currently enrolled in a Marketplace are receiving a tax credit. Additionally, an employer owes the play or pay penalty only if an employee receives a tax credit.

If the Supreme Court rules that premium tax credits are only available to individuals enrolled in state Marketplaces, employers should expect that states that have chosen to provide coverage through the federally-run Marketplaces will be under pressure to transition to state Marketplaces from those who have benefitted from the subsidized Marketplaces. Those that are benefitting from subsidized coverage include the individuals receiving premium tax credits, hospitals that are experiencing less unreimbursed care, and insurers that have invested in providing coverage through the Marketplaces. Similarly, states that have state Marketplaces may be pressured to move to a federally-run Marketplace by employers trying to avoid penalties. Debate is already occurring as to what, exactly, is needed to qualify as a state Marketplace should a state wish to move in that direction. Employers with employees located in multiple states could have to manage a situation in which some employees are eligible for tax credits and others are not.

The decision of the Supreme Court is expected in late June 2015.

To get the latest information on other federal developments including plan designs being disallowed—such as employer reimbursement of premiums for individual coverage, incentivizing employees in poor health to enroll in the marketplace, and more—download UBA's PPACA Advisor, "Agencies Disallow Several Plan Designs; Other Federal Developments".